Payam Javan: U.S. consumer sentiment has reached a seven-month high in early November, with positive shifts particularly driven by Republican households’ improving expectations. According to the University of Michigan’s Consumer Sentiment Index, sentiment climbed to 73.0, up from October’s 70.5, surpassing economists’ forecasts of 71.0. The survey’s expectations index rose nearly 6 percent to 78.5, marking its highest level since July 2021. Notably, optimism regarding personal finances improved, spurred by stronger income prospects and an uptick in perceived short-term business conditions.

The report, completed just before the recent presidential election, highlighted significant partisan differences in sentiment. Republican respondents exhibited the most considerable increase, with expectations jumping over 17 percent to 72.0, the highest level since October 2020. This surge brought their overall sentiment score to its peak since April. In contrast, Democrats saw a modest increase of less than 2 percent, pushing their sentiment to a seven-month high of 94.9. Independents showed a decline, with their sentiment falling by 9 percent to a four-month low of 60.1, reflecting the most pessimistic view of current conditions since the survey began tracking political affiliations in 2017.

Amid these changes, Americans’ inflation expectations showed mixed signals. The year-ahead inflation expectation dropped slightly to 2.6 percent in November from 2.7 percent in October, the lowest since December 2020, suggesting easing concerns over near-term inflation. However, long-term inflation expectations ticked up marginally to 3.1 percent from 3.0 percent, staying within the post-2021 range but higher than pre-pandemic levels. In response to broader economic conditions, the Federal Reserve has implemented rate cuts, the latest being a quarter-point reduction after the election, signaling a measured approach by Chair Jerome Powell on future monetary policy adjustments.